Meaning of term bond under GST

What is bond under GST

 

The details about bond are explained here. 

Bond:

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds.

The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semi-annual, annual, sometimes monthly). Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the second market.

Thus a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or short-term commercial paper are considered [by whom?] to be money market instruments and not bonds: the main difference is in the length of the term of the instrument.

Bond Under GST:

Exports without the payment of tax can be made only after filing a bond or letter of undertaking (LUT) as applicable to the exporter. There was a lot of ambiguity regarding the exports which are to be made without the payment of IGST. The government of India has released few notifications regarding the filing of bond and LUT in the case of certain specified people. Exporters can make the payment of IGST at the time of export and then claim the refund later but it will block their working capital.

Following Exporters Would Need to File LUT in Form GST RFD-11

Status holders mentioned in the foreign trade policy:

Entities which are prominent business leaders in the international trade and have successfully contributed to country’s foreign trade. Special treatment and privileges are provided to these entities to reduce their transaction cost and time.

For example TATA Steel in the export of steel or Vardhaman Textiles in the export of textile products.

Different export houses and their classification:

Export House status

FOB/FOR of exports (in US million $)

One-star export house

3

Two-star export house

25

Three-star export house

100

Four-star export house

500

Five-star export house

2000

 

Manufacturers who are also status holders as per (a) and (b) they will be permitted by to self-certify the goods as manufactured as per their Industrial Entrepreneur Memorandum (IEM) / Industrial Licence (IL)/ Letter of Intent (LOI).

Registered person who has received foreign currency for at least a total of 10% of the exports turnover and such value is more than 1 Crore in the preceding financial year would be required to file a letter of undertaking (LUT).

*The applicant shall not have been prosecuted under the CGST act 2017 or any other current laws for an amount exceeding Rs 250 Lakhs.

Export by Issuing Bond

Any other registered person other than mentioned above doing exports without the payment of IGST would need to file a bond which is available in the form GST RFD-11 under GST. Small exporters should file GST RFD-11 prior to the export if they want to avoid the blocking of working capital.

A detailed analysis of the form GST RFD-11 is provided in our series of article on refund forms. You would need to select which type of document is furnished (Bond or LUT)  in the form GST RFD-11.

Conclusion

Relief and clarification have been provided to the exporters to continue exporting without the payment of tax and the blockage of working capital.

 

The information provided here is about bond.  If you would you like to add more information about bond, share below your thoughts.

 

 


Comments


krishna R: you can elaborate how the bond works, how the limit is fixed and fluctuates and basis of fluctuation in bond value

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